Airline Merger Likely to Keep Fares Low

The proposed new airline from a merged US Airways and America West (AWA) is expected to keep its fares lows and offer travelers a range of new destinations. Consumers are likely to benefit from the combination, analysts say, even if the business model remains a work in progress.

The marriage of the nation's seventh and eighth largest carriers also expects to offer customers access to the Star Alliance (search), a global consortium of 16 airlines that includes US Airways, UAL Corp.'s (UAL) United Airlines, Germany's Lufthansa and Air Canada, whose parent company has agreed to invest $75 million in the new airline.

Such alliances are designed to allow mileage earning and accrual on all member airlines, letting them lure and retain customers for worldwide service.

Both struggling carriers say their goal is to create an airline designed to better compete with lower-cost rivals, such as Southwest Airlines Inc. (LUV) and JetBlue Airways Corp. (JBLU), which have taken market share from major legacy carriers in recent years and have remained profitable despite the industry's prolonged economic downturn.

Backed with $1.5 billion in new capital from a variety of investors, the combined airline will be the nation's No. 6 airline in terms of passenger miles. It will fly under the US Airways name.

Even though the combined airline plans to cut 59 jets from its fleet, analysts say the merger will not dramatically reduce the industry's number of excess seats, thus ensuring continued competition and favorable fares. The companies also say they plan to continue the same cities where they currently fly.

If US Airways, which last year made its second trip into bankruptcy in two years, had been left to liquidate, the market would have fewer seats and airlines would be able to raise ticket prices, said Ray Neidl of Calyon Securities.

Anthony Sabino, a professor at the Peter J. Tobin College of Business (search) at St. John's University and a lawyer with experience in airline bankruptcies, called the merger a "reprieve from a death sentence" for US Airways and a boon for consumers.

"Consumers should exploit this to their advantage," he said, explaining that a US Airways bankruptcy and resulting liquidation would have meant fewer seats and higher consumer costs.

Waiting in the America West ticket line Friday at Phoenix's Sky Harbor International Airport (search), flier John Karsten of Denver said he doubted consumers would see any changes in service due to the merger, including discounted ticket prices.

Even the so-called discount carriers have approximately the same prices as larger airlines, said Karsten, who hasn't seen different levels of customer service among different companies.

"I expect a certain level of care and safety, but it's the same Coke and pretzels on any flight," Karsten said.

Still, Karsten said he might be tempted to fly the new US Airways if the merged airline serves more cities than other carriers. "I'd rather stick with one or two airlines so I can improve my frequent flier miles," Karsten said.

Diana Fairechild, a former flight attendant who has written books on air travel, said consumers with an affinity for either US Airways and America West will have more options to fly and added opportunities to collect frequent flier miles.

"It's more opportunities for people who belong to those programs, because (the merged company) will go to more places," Fairechild said. America West, for example, doesn't fly to many destinations in the Southeast, Hawaii or Europe, which US Airways does. But the Tempe-based airline offers numerous routes to California, the Four Corner states and Mexico.

The biggest question for flier Isaiah Phan of San Diego was whether tickets would be cheaper.

Phan said he might fly America West more often if ticket prices drop and it expands the number of cities the airline serves. "That would definitely do it. It's more convenient," Phan said.

The airlines plan to merge their frequent flier programs, with current members retaining their full mileage balances.

But until the merger receives approval from regulators, America West shareholders and the Virginia court handling US Airways Group Inc.'s bankruptcy, frequent flier miles accumulated at one airline will not apply to the other carrier.

Caleb Tiller, spokesman for the National Business Travel Association (search), whose members include corporate managers who negotiate travel contracts with airlines, said he hopes the merger creates a stronger airline that offers better values for business customers.

But it will take several months for the merger to be approved and key details to emerge, such as whether discounts negotiated with carriers will remain in place.